New Scott Burns column on Social Security

[tryan]

Last year at this time, the discussion was mainly - 'At what age are you safe that Bush won't eliminate your SS' -

Yup, every Ponzi scheme fails for two reasons:

1. the administrator puts his hand in the kitty and
2. not enough new blood to support the pyramid.

SS is no different.

 

[Cut-Throat]

Yup, every Ponzi scheme fails for two reasons:

1. the administrator puts his hand in the kitty and
2. not enough new blood to support the pyramid.

SS is no different.

SS in NOT a Ponzi scheme. It is an insurance program. No one ever gets rich from SS.

SS is a Lot Different!

 

[haha]

I went looking for the paper by Alicia Munnell that is referenced in Burns’ column. Couldn't find it on her website, or at the Boston College Finance Website. But I did look at other papers she has written. My impression is that she is a heavyweight, and an honest researcher. She is Peter Drucker Professor of Management Science at Boston College. Management Science is highly fact based- it is a renamed Operations Research, I think intended to get away from the military connotation of early OR.

Here is something I excerpted that deals with a subtle point regarding research and social change. Alicia is writing:

"Let me conclude. In an introduction to Henry Aaron’s 1979 book Politics and Professors
that looked at the expansion and subsequent rollback of Great Society programs, Bruce
MacLaury characterized Henry’s findings as follows:

“…faiths and beliefs, not research, are the real basis for commitment to
social reform. …Research tends to be a conservative force because it
fosters skepticism by shifting attention from moral commitment to
analytical problems that rarely have clear-cut or simple solutions.”

I think that conclusion also applies to research and retirement policy. It was the “faiths
and beliefs” of the people associated with the early years of the Social Security that
provided “the commitment for social reform.” They envisioned and then worked to enact
a social insurance system so that people would have the protection they needed in case of
disability, premature death, retirement, and ill health. They used research as a tool in this
effort, and were in the enviable position of having a monopoly on the relevant
information. Research alone “tends to be a conservative force,” because it shifts
“attention from moral commitment to analytical problems that rarely have clear-cut or
simple solutions.” That conservative force is desirable when dealing with a program as
important and successful as Social Security. We do not want to make a mistake."

The italics are mine- Ha

 

[maddythebeagle]

From Wikipedia, the free encyclopedia.
A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. In fact, a Ponzi scheme must have abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going. Once the flow of new investment stops, the scheme is doomed to collapse.

Sure sounds like a Ponzi scheme. esp. for the workers in the 80s that had to start paying higher payroll taxes. I am sure it will get raised again eventually.

One comment was made by JPatrick that he asked current retirees about their decision..I would just warn you that the "early versus late" debate changed drastically only recently as the Full Retirement Age got bumped up to age 66

Would you explain this further. I thought the "early" out was also raised, also. At 62, you no longer get the 80%, you get 70 something percent?

 

[Cut-Throat]

From Wikipedia, the free encyclopedia.
A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. In fact, a Ponzi scheme must have abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going. Once the flow of new investment stops, the scheme is doomed to collapse.

Sure sounds like a Ponzi scheme. esp. for the workers in the 80s that had to start paying higher payroll taxes. I am sure it will get raised again eventually.


Would you explain this further. I thought the "early" out was also raised, also. At 62, you no longer get the 80%, you get 70 something percent?

So far the SS program is running a a Surplus - Again it is NOT a Ponzi scheme. No one knows what will happen in the future. Future projections show everyone at age 62 all punching out at the same time and collecting SS.

 

[Eagle43]

DW and I took ours at 62.  And, hey, we just got a small raise.  Guess we'll use it to buy I-bonds.  It sure makes sense to spend SS and let your investments increase. Haven't touched a penny of the Index Funds since retiring two years ago. It's increased also. ER Life is good.

 

[New Thinking]

HaHa - Here is a link to the paper (brief)

http://www.bc.edu/centers/crr/ib_35.shtml

 

[rmark]

Here's another take on the SS funding controversy
http://bruceweb.blogspot.com/

 

[SteveR]

Great information!

I have reviewed it and will see how things go over the next few years. My concern is a graduated income exclusion for benefits as the Boomers start drawing from the system and the politicians panic again. I may take it early just to lock in the payment even if it would make better financial sense (for my wife anyway) to wait later.

The past is no indication of future performance..........especially with government programs.

 

[haha]

HaHa - Here is a link to the paper (brief)

http://www.bc.edu/centers/crr/ib_35.shtml

Thanks New Thinking.

Ha

 

[REWahoo]

I may take it early just to lock in the payment even if it would make better financial sense (for my wife anyway) to wait later.

I'm three years away from making a decision, but this is one very big factor that makes me lean toward taking SS at 62.

 

[bongo2]

I'd have to say I've never found anyone who regretted their decision.  What was that decision?  A bit like the national averages, however, I've never met anyone who retired before 65 and then elected to wait for the max benefit at 70.

My grandparents took SS at 62 almost 30 years ago. We were talking about that a few weeks ago, and they mentioned that, while they are not beating themselves up about it, they would have come out much better had they waited to take their SS. Admittedly, since they are both in their 90's and still in good health, they may be the exception.

 

[sgeeeee]

. . .My concern is a graduated income exclusion for benefits as the Boomers start drawing from the system and the politicians panic again.  . .

That's the biggest factor I see supporting early withdrawal for me. I don't think I'm going to need social security benefits, but it would really tick me off if I waited and ended up collecting less (or nothing) because the politicians cut me off before I could start.

That's one reason I'm thinking the staggered approach might be good. I'll make sure I get something (if it hasn't already been changed by the time DW reaches 62) but if they don't shut ss down, I'll increase my COLA'd annuity benefit by waiting to take my own benefit.

 

[Spanky]

My grandparents took SS at 62 almost 30 years ago. We were talking about that a few weeks ago, and they mentioned that, while they are not beating themselves up about it, they would have come out much better had they waited to take their SS. Admittedly, since they are both in their 90's and still in good health, they may be the exception.

I rather take it at age 62 based on the following break-even numbers provided by SS:

Break-Even Age
62 vs 66: 76 years and 9 months
62 vs 70: 79 years and 4 months
66 vs 70: 81 years and 4 months

 

[haha]

Several people have mentioned the idea of taking SS early, to avoid possible negative changes in the benfit structure.

Unless you are very young, and hence this is really not a near-term concern, I think this is very unlikely. If SS were to become just another welfare program, it would be supported about as well as our other welfare programs are. For this important political reason, ending or gutting SS is less likely than other bad things, for example, another very important terrorist strike on US soil, or a breakaway panademic.

But my opinions don't have much weight. Here is what Prof. Munnell had to say in a public Q&A about a year ago while the privatization debate was still going strong.


Los Angeles, Calif.: As a 30-something, I can only see two possible outcomes for Social Security over the next 20 to 40 years:
a. It won't be around
b. My generation will be taxed to death so that the Baby Boomers can retire and then leave the program bankrupt for later generations

"B" is the likely answer since:
a. Our political and economic system rarely looks beyond next quarter
b. Our political system consists of entirely Baby Boomers, who have never shown themselves to look beyond their own generation's needs

Call me a cynic, but if I get a Social Security check when I retire, great, but I'm not counting on it.

Alicia H. Munnell: Social Scurity will be around and you will not be taxed to death. The Social Security actuaries say that raising the employer and employee tax each by one percentage would provide enough money to cover benefits for the next 75 years. One percentage point is not nothing, but hardly fits the "taxed to death" prediction. The alternative of course is benefit reductions. They would amount to about 20 percent -- holding harmless those 55 and over.


Dayton, Ohio: Ms. Munnell, the current discussions seem to be missing the fundamental question: What is the point of Social Security?

Is it supposed to be a retirement program? Or is it, fundamentally, a welfare program to protect those of the poor who happen to be old.

Rather than tinkering with percentages here and there, I wish we as a nation could have a real, meaningful decision about what we want it to BE, then decided how it should work.

Alicia H. Munnell: Social Security is a social insurance program -- not a welfare progrtam. Its strength rests with the fact that everyone contributes and everyone benefits. Because of its broad-based support and participation, Congress does not make capricious changes to the program and benefits involve no stigma.



There is more at    http://www.washingtonpost.com/wp-dyn/articles/A28634-2005Jan22.html

ha

 

[sgeeeee]

Thanks for the link, Ha. Very informative Q&A section. I'm pretty impressed with Prof. Munnell's command of the facts.

 

[Eagle43]

Good link.  And so are some of the other articles linked, like "What Crisis" and "Keep it Simple".  She's obviously against the reform GWB proposed.  If she is correct, then the entire "fix the ss problem" is a myth. 

I did not remember that the Brits had a bunch of people swindled after "privatizing" social security.  QUOTE: After the U.K. allowed workers to opt for private accounts in 1986, many insurance agents persuaded older workers to trade their secure government plan or generous employer-provided pensions for less favorable private accounts. This sparked the famous "mis-selling" scandal that resulted in the insurance companies paying $20 billion in damages for providing misleading advice. UNQUOTE.  I'm sure those people wanted the government to bail them out for their bad choices.  Why can't we take responsibility for our choices? I suppose I could take my SS and buy junk bonds with them. Might get rich, who knows. . .?

Seems to me people are either stupid or greedy.  I thought getting older cured that.  Guess not. To quote Paul Harvey, "Freedom without responsibility won't work." So, I guess we'll all be less free and let big brother do it.

 

[Texas Proud]

I rather take it at age 62 based on the following break-even numbers provided by SS:

                Break-Even Age
62 vs 66: 76 years and 9 months
62 vs 70: 79 years and 4 months
66 vs 70: 81 years and 4 months

Yes, but since my mom is in great health at 86... her dad died after being mugged while going to the horse track at 97... and we have some relatives that lived to be over 100 back in the 1700s.... I think I will wait... but, there might not be much there when I get there!!

 

[Nords]

Seems to me people are either stupid or greedy.

Or both...

 

[haha]

I rather take it at age 62 based on the following break-even numbers provided by SS:

                Break-Even Age
62 vs 66: 76 years and 9 months
62 vs 70: 79 years and 4 months
66 vs 70: 81 years and 4 months

Counterpoint-

"Imagine you're driving through El Salvador, hit a pothole and blow out two tires on your 2002 Cadillac.

You don't speak Spanish, have just one working eye and, by the way, you're 92 years old.

Earl George, who found himself in just that pickle, did what he often did on his 12,000-mile drive to and from Panama. He talked to himself. After all, this was a solo trip.

"OK, George, you wanted an adventure," he said to himself. "Well, George, this is an adventure.""


http://seattletimes.nwsource.com/html/localnews/2002772956_georgetravels31m.html

Ha

 

[Jarhead*]

Counterpoint-

"Imagine you're driving through El Salvador, hit a pothole and blow out two tires on your 2002 Cadillac.

You don't speak Spanish, have just one working eye and, by the way, you're 92 years old.

Earl George, who found himself in just that pickle, did what he often did on his 12,000-mile drive to and from Panama. He talked to himself. After all, this was a solo trip.

"OK, George, you wanted an adventure," he said to himself. "Well, George, this is an adventure.""


http://seattletimes.nwsource.com/html/localnews/2002772956_georgetravels31m.html

Ha

Pretty darn impressive!

Especially impressive was he only knew three words in Spanish,
and one of them was "Muchacha". You're alright, George.

 

[REWahoo]

Pretty darn impressive!

Especially impressive was he only knew three words in Spanish,
and one of them was "Muchacha". You're alright, George.

I think it's more amazing that one of the three words was "manana". For a 92 year old, "tomorrow" is a pretty exotic concept...